Land is worth more when it is closer

Land is worth more when it is closer

by Gary SipiorskiThe author is the dairy development manager for Vita Plus of Madison, Wis. He is a member of the board of directors with Citizens State Bank of Loyal, Wis.

There is generally good feedback on articles that I submit to Hoard’s Dairyman. I must admit the comments have been exceptionally heavy regarding my September 25, 2011, article, “Stress test potential land purchases” found on page 600. Comments came from sellers, buyers, lenders, attorneys, and many others.

Since the September article, there has been a new record farmland sale set in Iowa at $16,750 per acre. A few weeks later, I attended a two-day business meeting in October where a lender shared a land price projection for 2020 of $22,000 an acre for the Hawkeye state.

I am certainly not promoting an escalation in land values. Federal agencies and lenders in general are concerned about a land bubble and rightfully so. Current sales are running high for a variety of reasons, including: people with strong balance sheets, low interest rates, a need for a continued nutrient management plan, and land close to the dairy buildings.

Recently, I had an interesting discussion with a southeastern Wisconsin dairyman. He drew circles around his dairy in a one- to five-mile radius. Our discussion began with the reasoning of hauling one semi-load of corn silage per acre from a field and returning 16,000 gallons of manure per acre back to the field.

If a dragline is used to get manure onto a field, these costs are incurred:
If you do the math, 16,000 gallons of manure multiplied by 1 cent per gallon equals $160 per mile. Using his math, he could justify paying an extra $160 more per acre as he moved from one to five miles closer to his dairy farm. In other words, land that comes up next door is worth $800 more per acre than land five miles away.

If the manure is trucked rather than using a dragline, 0.6 cent is added per gallon of manure for each mile.

Now a dairy producer and potential land buyer will have to do their own math on what the additional value of an acre of land is the closer it is to the dairy. More lender discussion and financial analysis needs to be done, as well. This is another way to look at what land is worth to you.